What is an Exchange Rate?

An exchange rate is the ratio at which two currencies are traded. The exchange rate is comprised of a base currency and a counter currency. In a direct quotation, the foreign currency is designated as the base currency and the counter currency is the domestic currency. In an indirect quotation, the domestic currency is designated as the base currency and the counter currency is the foreign currency.

What is a Floating Exchange Rate?

A floating exchange rate is one that is allowed to vary freely, depending on the levels of supply and demand for the applicable currency.

What is a Spot Exchange Rate?

The spot exchange rate is the exchange rate at which a currency can be delivered immediately. Thus, it is the open market price at which a forex trader would be willing to purchase the currency.